Bank of England Governor Mark Carney recently called for a global digital currency, expressing a desire to move beyond the US dollar hegemony as the world’s reserve currency, but also avoid having another national currency, such as China’s renminbi (or their newly announced digital currency), replace it. While some might point to private sector initiatives such as Libra as already-announced solutions addressing this need, Mr. Carney is correct in identifying that we should go in a different direction. And, indeed, French Finance Minister Bruno Le Maire declared at a recent OECD forum that Libra threatens the very sovereignty of national governments and should be banned.
Libra, if you haven’t been following it, is a new digital currency that Facebook and a host of others launched to underpin next generation financial services. It’s the right idea in absolutely the wrong hands. Using Libra is like handing your house keys to the gang that just graffiti’d your car. More on that in a minute.
Using Libra is like handing your house keys to the gang that just graffiti’d your car.
By combining almost all of the world’s financial infrastructure with one of its most powerful marketing and messaging platforms (Facebook owns WhatsApp, let’s not forget), Libra seems destined to succeed. It could be a vehicle to address the deficiencies in the global financial system that have led 3.5 billion people to be underserved and underbanked.
Libra also is an existential imperative for Facebook. Facebook’s global rivals such as Ali Baba have payments technology intrinsically woven into the fabric of popular messaging platform WeChat (2 billion users and climbing). Facebook must have Libra to remain competitive in the near term and long term.
But do consumers benefit?
Facebook has facilitated greater damage to democratic institutions than almost any other media or technology platform in history, by first supporting the fragmentation of societies into echo chambers of ever-more-extreme polarized subgroups, and then by enabling and profiting from state-sponsored “troll farm” activity (aka illegal foreign influence on US elections) – all the while accepting significant investment from Russian oligarchs. Along the way they managed to oversee a series of massive cybersecurity breaches, storing critical user data and even passwords for millions of people in unencrypted form.
Do we want to hand over our money to these same people?
Do we want our next generation financial system to be powered by a group that counts among its number zero elected representatives? Or even zero officials appointed by elected representatives?
What would a better answer look like?
Mr. Carney suggests a global digital currency. Perhaps a multinational organization, such as the Commonwealth of Nations or the OECD, could serve as a neutral environment in which to coordinate a more benign vision of this multilateral instrument, one that actively solicits private sector cooperation but that also accepts the responsibility to act with the consent of the governed.
The Commonwealth is appealing given its reach across 2.4 billion people and a shared legal and cultural heritage. In my fintech policy work advising the Commonwealth Secretariat, I have become aware of numerous central banks and finance ministries that are exploring, investigating, or launching Central Bank Digital Currencies (CBDC’s).
The OECD encompasses directly the wealthiest countries on the planet that provide most of the economic output, has a predilection for setting standards that could be adopted globally, provides technical assistance to governments, and has a sophisticated point of view and set of activities around blockchain.
What if, instead of four dozen CBDCs, there were a pan-governmental instrument that facilitated flow of trade and inclusion for a third of the world’s population?
The technical architecture to make this possible already exists, and predates Libra’s white paper by more than two years (noting striking similarities between these two MIT-originated documents). It’s called Tradecoin, and it was described in 2018 in Scientific American.
Tradecoin was conceived of by Alex Lipton, Alex Pentland, and Thomas Hardjono. Pentland and Hardjono are my co-editors of a new book coming this fall from MIT Press, Trusted Data: A New Framework for Identity and Data Sharing, in which we describe a new means to address the fundamental privacy deficiencies we saw in the current societal and technological landscapes.
One of the Trusted Data chapters discusses Tradecoin, and provides a vision of a “stable coin” that reduces economic cost and friction for nations with a new digital currency that is tied to the goods (and even services) that these nations produce. Unlike the euro, which replaces national currencies, an OECD Tradecoin (“OECD Coin”?) would be federated, enabling each participating country to retain fiscal sovereignty while enjoying the benefits of the commons.
..a compelling opportunity to foster financial inclusion, promote economic stability, and improve transparency across a global footprint
Tradecoin, in OECD hands, represents a compelling opportunity to foster financial inclusion, promote economic stability, and improve transparency across a global footprint. It’s time for a digital currency of the people, by the people, and for the people, that is embraced by the core institutions that make society function.